Statement to the Finance and Personnel Committee
Wednesday, 14 November 2007DRAFT BUDGET 2008-11
Rt Hon Peter D Robinsob MP, MLA
Background
I welcome the opportunity to discuss the draft Budget with the Committee, particularly in terms of the strategic issues as you will appreciate the more detailed points will be for individual Departments.
The objective of the local Budget process is to determine the spending plans for NI departments over the period 2008-09 to 2010-11. This will be completed by early 2008 when the Budget Final Report will be published, alongside the Executive’s Programme for Government and the Investment Strategy for Northern Ireland.
Although work on the draft Budget did not begin in earnest until the restoration of devolution in May, the formal starting point was in July 2005 when the Chief Secretary to the Treasury announced the launch of the 2007 Comprehensive Spending Review, to identify what further investments and reforms were needed to equip the UK for the global challenges of the decade ahead.
Overall Level of Resources
A major factor in determining the resources available for allocation to public services in the Budget process, is the additional funding made available as a result of the UK wide Comprehensive Spending Review.
The Chancellor of the Exchequer announced the outcome of the CSR on 9 October which provided the Executive with real growth of 1.2% in the Northern Ireland Block Grant, significantly below the rate of growth experienced in previous spending reviews. In overall terms the Executive will receive an additional £1.1 billion (resource and capital) from the Treasury by 2010-11 compared to 2007-08.
Therefore, it is imperative that efficiency savings are made to meet public expectations as regards improvements in public services. The Executive has agreed that all the main NI Departments should achieve 3% per annum cash releasing savings over the Budget period. This will provide departments with additional spending power of £800million by 2010-11, over and above the simple increase in spend on the 2007-08 position.
Although the Departmental Efficiency Delivery Plans or EDP’s, developed under Direct Rule Ministers, to deliver the 3% savings will be reviewed by Executive Ministers as we move from draft to Final Budget I have already made my views clear that there is scope for some programme areas to go further. A Performance and Efficiency Delivery Unit will be established to identify the scope and actions required to deliver further savings.
In overall terms, the Executive had £1.6 billion in terms of resource expenditure, including efficiencies, for allocation to Departments. In terms of capital, a zero based approach was taken in line with the one-off nature of capital projects - this meant that almost £5billion was available for allocation to capital projects.
Water and Rates
A key issue for the Executive in the draft Budget process was the approach to the funding of water and sewerage services. There was a choice between, at one extreme, a substantial increase in utility bills and, at the other, reducing the amount of funding available for other public services by around £170million per year.
On 22 October 2007, the Minister for Regional Development presented the Executives response to the Strand One report of the Independent Water Review Panel. The main recommendation was that water charges should be introduced from 2009-10.
However, in recognition that consumers should not pay twice for these services the Panel recommended that there should be an offset on the regional rate of just over £109million equivalent to £160 per household.
While this will reduce some of the burden on households and local business I wanted to ensure that the full benefits of the offset were felt over the next three years by freezing domestic regional rates in cash terms with non-domestic rates rising in line with inflation only.
The Panel’s findings were made available shortly before the draft Budget was launched, therefore, further work will need to be taken forward to confirm the costs before Final Budget.
Departmental Allocations
Turning now to the draft Budget allocations
In the early summer, Departments were asked to put forward a set of resource spending proposals, each of which was subject to High Level Impact Assessment so that individual Ministers could be aware of the impact on equality, good relations etc.
In response almost 270 proposals were put forward with a total cost of over £2.6billion by 2010-11. In light of the expected level of resources this inevitably means that not all proposals will have been successful.
Over the summer period my officials and I worked with Departments to develop an initial set of indicative Budget allocations for each Department.
On the capital side, my officials worked with the Strategic Investment Board on the development of the Investment Strategy. This followed a similar path as the resource position, with departments providing the SIB with details of their investment proposals and the development of an initial set of indicative capital allocations for each department.
These were subject to a significant level of discussion with Departments, including Ministerial bilaterals with the draft Budget position developed on an iterative basis. This work was informed by the ongoing work to develop the Executive’s priorities in the Programme for Government and the Investment Strategy for NI.
The draft Budget was also discussed at the Executive meetings on 13 September and 8 October following an initial discussion on 24 May 2007- therefore the draft Budget is a joint effort by the Executive.
At the Executive meeting on 23 October 2007, all Ministers agreed the proposed Departmental Allocations for inclusion in the draft Budget document as the basis for public consultation - no Minister was different in this respect.
The draft Budget document sets out the broad range of pressures and service developments that could be funded from the proposed Budget allocations. These were summarised in my statement to the Assembly of the 25th October and I do not propose to go into such detail today.
Although Departments have prioritised their spending proposals and have indicated in broad terms how they intend to distribute the proposed Budget allocations within specific programme areas, it will be the responsibility of individual Ministers to review the specific amounts for each service as we move from draft to Final Budget.
Initial Response to Budget
I have been encouraged by the debate that has been stimulated by the draft Budget proposals as a further sign that local politics is shifting its focus towards the issues that matter on a day to day basis to the people of Northern Ireland. I have already received a number of submissions, particularly from the Arts sector, putting forward views on the Executive’s proposals.
However, there are two issues that I would like to touch on with the Committee where I feel there has been misrepresentation of the draft Budget proposals. In the first instance, the charge has been made that the draft Budget is pro-business and hence automatically, anti public services and right wing.
The restoration of sustainable devolution provides a window of opportunity to make significant progress in addressing the underlying structural weaknesses in our economy. While the private sector has the primary role in this respect, it is essential that there is support from the Executive.
This is not about feathering the nest of fat-cat business leaders, but instead, putting in place the conditions for the creation high value added jobs for the people of Northern Ireland as the best way in which deprivation and the other social ills of our society can be addressed. The further benefit is that a less deprived society places less pressure on public services.
The other main issue that has arisen is the level of funding for the health service which is the subject of the charts that you can see behind me. The Health Minister and various commentators have argued that the health and social care sector requires more funding than has been allocated in the draft Budget.
This is entirely right and proper, as the same points have been made to me by all other Executive Ministers as the draft Budget was being developed. I fully recognise the pressures faced by the health service and the benefits felt by improved services.
However, I am very disappointed that the point on health funding has been exaggerated to such an extent and the draft Budget proposals presented by some as a critical threat to the health service when the key facts clearly indicate that this is not the case.
Chart 1 shows that the health service will receive more than half of the additional resources available to Northern Ireland Departments over the period 2007-08 to 20010-11. This is more than its current share of spend and means that, by 2010-11, the health & social care sector will account for 48.1% of the total available expenditure for the main Northern Ireland Departments, as shown in Chart 2.
In addition to the increase in available funding over the next three years, the spending power of Departments will be further enhanced by cash releasing efficiencies, whereby the same level of priority services will be provided at lower cost.
Chart 3 highlights the contribution made by efficiency savings in terms of overall spending and hence the need for the 3% savings target to be delivered. In addition, the chart further emphasises the point that Health has not been discriminated against in the draft Budget process. It is also clear that to achieve a significant increase for Health, would require substantial, if not catastrophic, reductions for other departments.
The final chart sets an important context for the draft Budget proposal by showing that expenditure on health and social care in 2010-11 will be more than double the level in 2000-01. While there have been some improvements in services to the public over this time, these have not been to the extent that would have been expected given the scale of additional resources.
This means that there are significant inefficiencies within the system which, if addressed, could provide substantial additional resources for improved services. For example, there are significant improvements that have yet to be delivered from the significant investment in pay reforms such as Agenda for Change and the Consultants Contract.
These benefits should be realised over the Budget period. However, this would be less likely if resources were provided which allowed further procrastination regarding the difficult, but necessary, and ultimately inevitable, decisions to be made regarding the provision of health & social care services.
In light of the evidence presented I would hope that the Committee would share my opinion that the draft Budget allocation for Health represents a fair and generous outcome in terms of the allocation to other Departments. While additional funding would be preferable it is important that we have a better health service and not simply a more expensive service.
Public Consultation
The draft Budget document will now be subject to 10 weeks public consultation, alongside the draft PfG and ISNI, which closes on 4 January 2008.
In terms of the Assembly, the Finance & Personnel Committee Chairperson has written to the Chairs of the other Statutory Committees to commission their views on the draft Budget for their respective departments for inclusion in a co-ordinated report to me.
In addition, there will be a “Take Note” debate on the Draft Budget at the end of this month and I look forward to hearing the view of Assembly members.
There have already been advertisements placed in local newspapers requesting the views of the general public on the draft Budget. In addition, there will be a small number of consultation events across Northern Ireland as well as meetings with key stakeholder groups such as business organisations, trade unions, the community and voluntary sector and the Equality Coalition.
The important issue is that there is very little flexibility as regards the overall level of resources available to fund additional allocations to departments, although I would hope that the work of the Performance and Efficiency Delivery Unit will provide additional resources in the medium term.
Therefore, the only way in which one department will be able to have an increase in its allocation is to reduce the allocation for other departments which will be difficult.
I have tried to achieve the optimal balance between recognising the importance of promoting growth in the economy as the Executive’s top priority and the need to continue improving our priority public services including health and education.
While there will be arguments on both sides, the simple fact is that the relative size of the budgets for DETI and DHSSPS for example, means that the only way in which significant additional resources could be provided to the latter would be to decimate the DETI budget - this is clearly not a plausible option.
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